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Chile Peso Outstrips Colombian Currency Weakened by Central Bank

Chile’s peso climbed to its strongest this year relative to Colombia’s currency after policy makers in Bogota lowered interest rates and expanded the central bank’s dollar buying program.

The Chilean peso strengthened 0.4 percent to 3.7884 Colombian pesos as of 11:21 a.m. in Santiago, on course for its highest closing level since Dec. 8. Chile’s currency gained 0.1 percent to 480.67 per U.S. dollar.

Chile’s peso is outperforming Latin American peers as faster-than-forecast economic growth leads traders to forecast the central bank will leave benchmark borrowing costs unchanged until next year. Two rate cuts at Colombia’s central bank and pledges by monetary officials and the government to buy dollars have stemmed gains this year in that country’s peso, which was the world’s best performer versus the dollar in the first half of 2012.

“The additional intervention wasn’t a big deal but they have shown that they have options,” said Flavia Cattan- Naslausky, a currency strategist at RBS Securities Inc. in Stamford, Connecticut. “Chile has been doing very well despite everything. Macroeconomic growth has been strong and, unlike Colombia and Brazil, the Chileans aren’t rushing to cut rates.”

Colombia reduced borrowing costs for a second straight month on Aug. 24 after inflation slowed to the target rate, while also announcing that the central bank will buy $700 million by the end of September to curb gains in the peso.

Rate Outlook

In Chile, the median forecast of 51 traders and investors surveyed by the central bank for an Aug. 22 report was that the bank would leave rates unchanged at 5 percent through December. On Aug. 20, the bank announced gross domestic product grew 5.5 percent in the second quarter from a year earlier, faster than economists had forecast.

Chilean domestic demand may grow 6.7 percent this year as the stronger currency cheapens imports, economist Javier Salinas at Larrain Vial SA wrote today in a note to clients. Larrain Vial raised its growth forecast for this year to 5.3 percent from 5 percent.

International investors in the Chilean peso forwards market increased their short peso position to a three-week high of $8.9 billion on Aug. 23.

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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